Roger Partridge: Time for a 21st-century reset

As seen in North and South Korea, the path to prosperity lies in more market economy and less central planning, says the author. Photo / AP

OPINION:

A time traveller from the end of the last millennium could be forgiven for thinking the 21st-century world has lost its way.

At the end of last century, even the most uncharitable could only marvel at humanity's progress. In the second half of the 20th century, more people had been lifted out of absolute poverty than in the previous 500 years. Whole diseases had been tamed. Famine, a regular occurrence as late as the 1970s and 1980s, had become a rarity. And liberal democracy had advanced into almost every corner of the globe.

Despite fears on the eve of the new millennium that a computer bug might bring the world to its knees, as the clock chimed midnight on December 31, 1999, humanity had never been freer, more prosperous, safer, healthier, or longer-lived.

Two decades or so later, the world looks quite different. According to Washington DC-based Freedom House, world freedom has now been in decline for 16 consecutive years. And the pace of decline is rising.

The world is now more authoritarian, more polarised, and more dangerous than it was just two decades ago. It is also less well-informed.

Central bankers have forgotten how to control inflation. Educationalists have forgotten how to teach children to read. (Just as parents have forgotten the importance of sending their children to school.) Our political leaders have forgotten that debt needs to be repaid and cannot be endlessly foisted on future generations. More troublingly, they seem to have forgotten where their predecessors left the keys to prosperity.

In the aftermath of the pandemic, the state is increasingly seen as the answer to everything. From housebuilding to unemployment insurance and from banking to journalism, there is no end to the modern state's hubris.

This is perhaps understandable. If the pandemic could be defeated by central government action, why not apply that approach to the post-pandemic recovery?

Yet the story of humanity's great advance in prosperity is not one of central planning and state control. Indeed, real-life experiments reveal the opposite.

Whether the comparison is East and West Germany, North and South Korea or North America and South America, the countries that relied on economic freedom in the form of private property rights and competitive markets are the countries that prospered. Those that relied on central planning languished. Even China only unleashed economic prosperity when Deng Xiaoping orchestrated China's transition to a market economy.

And even with the pandemic, it was competing for private sector businesses that really rescued humanity. State-enforced lockdowns and wage subsidies provided breathing space. But it was vaccines developed by mainly privately owned pharmaceutical companies that provided the lifelines to save us from the ravages of the coronavirus. It would be a different world today without the likes of Pfizer, AstraZeneca, Moderna and Johnson & Johnson. All hail Big Pharma!

The differing fortunes of citizens in Germany and Korea in the second half of the 20th century provide compelling insights into the drivers of human prosperity.

In each case, homogeneous populations with comparatively similar geographies were divided in two following wars. Within a very short time, the differing institutional arrangements adopted by the different parts of each country had massive effects on the comparative prosperity of their populations. The parts that adopted market – or "capitalist" – economies prospered. Those that adopted economies based on central planning suffered in comparison. In the case of North Korea, the suffering continues.

In Civilisation: The West and the Rest, renowned economic historian Niall Fergusson identifies six institutional arrangements responsible for the Western world's rise in prosperity, and for its transmission across the globe, particularly in the second half of the 20th century. Ferguson claims competition, science, property, medicine, consumption and work ethic are the "killer apps" for human progress.

The relative importance of each can be debated. And Ferguson's omission to single out individual freedom and the rule of law (and his conflation of them with property rights) is no doubt a provocation. But it is striking that in the new millennium all of Ferguson's killer apps are under attack.

Competition and the gains from trade are increasingly muted in the face of domestic regulatory barriers and rising international protectionism.

Science and the scientific method are being challenged by those who see it as a "Western" construct and an instrument of colonial oppression.

Property rights have been progressively diminished by planning laws and, in New Zealand, face perhaps their biggest ever assault from David Parker's RMA reform proposals.

Medicine likewise faces critical challenges, especially with efficient and equitable provision. As with science, medicine also faces increasingly hostile and sceptical consumers. And in the wake of the pandemic, the anti-vax movement only looks set to grow.

The problem with consumption is different. There is no shortage of it. But credit-fuelled spending from the rapid expansion of liquidity and debt by central banks may be the most immediate challenge for the global economy.

Finally, work ethic. Few OECD countries can claim to have set the social welfare safety net at the perfect level, one at which the truly needy receive enough support without muting the incentives for the able-bodied to undertake productive work. The rise in the numbers of Kiwis receiving Jobseeker support while the country faces acute labour shortages suggests New Zealand is among those countries whose settings need scrutiny.

If the world is to resume the march towards greater prosperity and freedom, we must learn from history. The lessons from the two Germanies and the two Koreas are clear. The path to prosperity lies in more market economy and less central planning.

Along the way, we also need to upgrade the settings on some of our critical apps.

If we fail to do so, when the visitor from the end of the 20th-century checks in on us in another two decades' time, the world will not be one many of us would choose to live in.

• Roger Partridge is chairman and a co-founder of The New Zealand Initiative